Overview

In its final patent decision of the October 2017 term, the Supreme Court today issued a decision concerning the scope of damages that are available for infringement under Section 271(f). The Court held that damages are available in a U.S. patent infringement case, though products infringing the patent may be assembled or used exclusively overseas. The case is a significant development in the extraterritorial application of U.S. patent laws.

Section 271(f) traces its history to the Supreme Court’s decision in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972). In that case, the Court held that a defendant did not “make” an invention within the United States when it produced the invention’s components in the United States but sold them to foreign buyers for final assembly abroad. Congress created Section 271(f) in response. Section 271(f) states as follows:

(f)(1): Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

(f)(2): Whoever without authority supplies or causes to be supplied in or from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use, where such component is uncombined in whole or in part, knowing that such component is so made or adapted and intending that such component will be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer.

In the instant case, WesternGeco is in the surveying business, and had multiple patents covering its surveying techniques. The defendant, ION, infringed WesternGeco’s patents by manufacturing components for a competing system in the United States and then shipping the components overseas to companies abroad. Those companies combined the components to create systems to compete with WesternGeco. WesternGeco sued for patent infringement under Section 271(f)(1) and (f)(2) and a jury awarded both royalties and lost profits damages for ten contracts that WesternGeco had lost due to the infringement. On appeal the Federal Circuit reversed.

The Supreme Court reversed the Federal Circuit. The Court noted its general presumption against extraterritorial application of U.S. patent laws, and recited its two-step framework for deciding questions of extraterritoriality: whether the text of the statute “provides a clear indication of extraterritorial application,” or “whether the case involves a domestic application of the statute.” The Court found the second step satisfied here. Specifically, the statute makes it an act of infringement to “suppl[y] or cause[] to be supplied in or from the United States” certain components used to make a machine abroad. The Court found this to focus on U.S. activity rather than foreign activity. Accordingly, damages pursuant to Section 284 for infringement under 271(f) can include lost profits damages, regardless of the locus of the underlying act of infringement.

The opinion was written by Justice Thomas. Justice Gorsuch dissented in an opinion joined by Justice Breyer. They would have held that lost profits were not available.

It should be noted that the WesternGeco patents have since been the subject of numerous IPRs, and several have since been found invalid. For more on those patents and the current state of their validity, see our write-ups of recent cases here and here.